Funds to invest in Renewable Energy

We take a look at the Pictet-Clean Energy, DNB Fund Renewable Energy and BGF Sustainable Energy funds to find out what the benefits of investing in renewable energy.

Investor Relations Specialist

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The world is grappling with a number of global challenges and one of the United Nations’ 17 Sustainable Development Goals is to ensure access to affordable, secure, sustainable and modern energy for all. Here, we take a look at the Pictet-Clean Energy, DNB Fund Renewable Energy and BGF Sustainable Energy funds to find out what the benefits of investing in renewable energy are, why it is so important and what the managers see as the outlook for the coming years.

Funds to invest in Renewables

ISINInvestment FundRentability YTDLast 12 months Rentability
LU0312383663Pictet-Clean Energy3,81%39,23%
LU1660423721DNB Fund Renewable Energy11,39%87,37%
LU0171289902BGF Sustainable Energy8,54%47,61%

Pictet-Clean Energy

Pictet-Clean Energy is one of the best known funds investing in renewable energy. Pictet AM’s objective is to achieve capital growth by investing at least two-thirds of its assets in equities issued by companies around the world that contribute to or benefit from the global transition to less CO2-intensive energy production and consumption.

More than half of its portfolio is invested in US equities, with a weight of 59.11%. Looking at sectors, technology dominates the rest (52.5%), followed by utilities (21.14%) and industrials (16.03%). In terms of specific stocks, NXP Semiconductors, ON Semiconductor and NextEra Energy are the three companies with the largest weight in the portfolio.

Xavier Chollet, Fund Manager Pictet Clean Energy

The fundamentals are increasingly favourable

There is a growing awareness about climate change and urgency to accelerate the energy transition, as indicated by the ambitious emission reduction and carbon neutrality targets.  The EU has committed to reducing them 55% by 2030 compared to 1990 and the US, China, Japan, South Korea, UK, Canada and India have all set targets.

Rapid technological innovation will allow greater electrification of transport, buildings and factories. To this is adds the legislation against air pollution and climate change.

Indeed, in the automotive sector, EU CO2 standards for 2025 and 2030 leave no choice but large-scale electrification.  It is the segment that can take most advantage of the new government plans, to the point that by 2030 the share of electric vehicles may be 20%. In this segment is noteworthy the new generation of power semiconductors, with fast growth, large barriers to entry, structurally higher margins and low competition from Asia. It should be borne in mind that transport accounts for 80% of oil consumption and manufacturers have a strong incentive to develop more efficient engines, which benefits companies specialized in spare parts, automation technologies and smart grids.  Even the demand for low-emission buildings and energy-efficient appliances is backed by stricter standards. For their part, factories are increasingly using sophisticated software to save resources and energy.

Although in clean energy there has been short-term profit taking from investors, the fundamentals are increasingly favourable.  The energy transition to solar and wind will occur, even in an environment of low economic growth.  They will be the main sources of the new electricity supply, favoured by the rapid decrease in costs, including energy storage with lithium batteries.  Our favourite values in renewables are utilities in transition from the fossil world to the renewable future.

DNB Fund Renewable Energy

DNB Asset Management is one of the leader’s asset managers companies in the Nordic region.  Its objective is to design world-class UCITS funds to market throughout Europe through its investment operations in Norway. The DNB Fund Renewable Energy, managed by Christian Rom, Stian Ueland and Laura Mc Tavish seeks to benefit from renewable energy trends. As part of the portfolio management team, Rom has the in-depth knowledge and understanding necessary to manage and further develop the vehicle.

It is a global equity product that invests in companies that help improve the environment, launched in 1989 in Norway and in 2007 in Luxembourg. The fund invests in sectors with good growth prospects, which enhance value creation and are attractively valued.

Christian Rom, fund manager of the DNB Fund Renewable Energy

The fund focuses on finding sustainable solution providers that contribute to the improvement of the climate and the environment around the world. This is a key driver for this business. To do this, we focus on companies with more than $ 100 billion in market cap and very liquid in the markets ($ 1 million in daily trading volume). We are committed to non-polluting energy; for the advance towards electrification, such as cars or buses, for which a profound transformation is necessary; for energy efficiency, or for the circular economy.

We focus on an investment universe of around 3,000 stocks in which the improving of the environment is the engine of their business growth. Then we filter through the development of a bottom-up analysis model for each company, a Darwinian approach and a fundamental analysis to select between the 25 and 60 best ideas.

Prospects for the renewable energy sector 

We are still in the early stages of the energy transition and the prospects for growth in the renewable energy sector are still substantial. In addition to emissions reductions, the long-term drivers we see are, above all, the move towards a circular economy and the growing global demand for sustainably generated energy, supported by competitive prices.

The environmental challenges are becoming increasingly clear. Global temperatures have risen since industrialisation and will continue to rise unless action is taken. To achieve the energy transition, an annual investment of more than 2% of global GDP will be needed over the next decades, which is currently around 90 trillion dollars. Also, in 30 years, the way energy is generated will have to change completely. Fossil fuels currently account for approximately 80% of energy consumption and a transition to a model where electricity (renewables) accounts for 80% of energy consumption by 2050 is needed. 

In this respect, government policies and regulation are key. We see important catalysts such as the election of Joe Biden as US president, who has returned to the Paris Agreement, or the green recovery plan in Europe. At the same time, renewable prices are becoming cheaper and more competitive, not relying so much on government subsidies. 

In this context, we see opportunities in four main areas: clean energy (solar and wind), electrification (cars or buses), energy efficiency (insulation of a house or installation of LED lighting) and circular economy (better use of resources). 

BGF Sustainable Energy Fund

Finally, the third fund we present to you for investing in renewable energies is one from BlackRock: BGF Sustainable Energy Fund. Globally, it invests at least 70% of its portfolio in shares of companies related to new energies. That is, those linked to energy technologies and alternative energies, including: renewable energy technologies, renewable energy developers, alternative fuels, energy efficiency, energy supply facilitation and infrastructure.

The BGF Sustainable Energy Fund’s portfolio is invested in sectors such as technology (35.78%), industrials (30.61%) and, to a lesser extent, utilities (23.04%). Once again, Enel is in first place with a weight of 4.43% in the portfolio, followed by NextEra Energy and Schneider Electric.

Alastair Bishop, Global Head of Sustainable Core Investing

The BGF Sustainable Energy Fund seeks to maximize total return, by investing globally in companies which are benefitting from or enabling the transition to a lower carbon economy. The three key sub-sectors within the fund are clean power, energy efficiency and clean transportation.

We believe an active approach is key in accessing this theme as it requires deep forward-looking insight to identify those companies set to emerge as beneficiaries. We have a flexible investment style, always looking for growth, value and turnaround stories, and would therefore, not describe ourselves as having a particular style bias. We also believe that strong Environmental, Social and Corporate Governance (ESG) is positively correlated with investment performance and embed these considerations into our investment process.

The BGF Sustainable Energy Fund is the largest fund within its Morningstar peer group.

The breadth and expertise of our research capability to identify companies with pure exposure to the sustainable energy theme.

A disciplined portfolio construction process that is risk optimised to ensure investments are diversified and reflect the portfolio managers’ highest conviction ideas.

The ability to leverage the broader fundamental equity platform of more than 200 investors globally.

We believe that markets are not fully efficient and through our research, we can find companies being undervalued by the market. We do not believe that simple, broad exposure to hundreds of companies connected to a theme is optimal as with disruptive themes, there are typically many losers and a few big winners.

As such, we feel the best way to play this theme is through a concentrated, focused portfolio targeting only those winners.

We see the sustainable energy theme accelerating with economic stimulus post COVID likely to be focused on green industries as evidenced by the EU Green Deal.

Sustainable Energy is supported by the acceleration of the transition to a lower carbon economy. Renewable energy costs for onshore wind and solar PV, are now at grid parity in certain markets and such power generation now represents the most economic technology choice, which is driving rapid adoption. We see similar cost competitiveness trends in other areas such as energy efficient lighting and energy storage solutions in automotive electrification.

The path to a lower carbon global economy is forecast to disrupt many industries and business models. However, this evolution is also expected to create remarkable opportunities. To quantify, the International Energy Agency estimates that over $20 trillion will be invested in the sector through 2040, an average of nearly $1 trillion per year.

The BGF Sustainable Energy Fund is positioned to capture such industry shifts and reap the benefits from this transition. Within transportation, the tighter CO2 emissions limits in Europe mean that 2021 is set to be a key year of transition for the auto industry.  New electric vehicle models from the major global auto manufacturers enter showrooms with significantly improved range and design.

We believe that the scale of the growth opportunity for the sustainable energy sector as a whole over the coming years has been under-appreciated both as a play on capital allocation and attractive long-term investment exposure.

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Funds to invest in Renewable Energy